LONDON, May 4 — The pound fell to its lowest level since Wednesday overnight, driven by a stronger dollar as China-US relations worsened, but it erased some losses in early London trading today.
The US government made a renewed effort to blame China for the coronavirus outbreak. Secretary of State Mike Pompeo said yesterday there was evidence the virus, which has killed nearly a quarter of a million people globally, was made in a Chinese laboratory.
The heightened tensions between the US and China diminished market optimism about an economic restart as countries started to ease their lockdown restrictions. As investors flocked to the safe-haven dollar, cable fell.
“The souring of risk sentiment has placed the pound on the defensive at the start of this month,” said Lee Hardman, currency analyst at MUFG.
“In recent months it has traded very much as a risk on /risk off currency,” he added.
Against the dollar, the pound was last at US$1.2452 (RM5.37), having fallen 0.4 per cent since New York’s close on Friday. It recovered somewhat between 0600 GMT and 0700 GMT as London opened, before falling again.
The pound was broadly flat against the euro, at 87.81 pence .
Britain’s defence minister said he agreed that China has questions to answer over the information it shared about the coronavirus outbreak, but that a post-mortem about its role should not come until the virus is under control.
Sterling gained 1.4 per cent against the dollar in April, returning to a seasonal trend of a Spring bounce which it missed for the past two years.
But the bounce could be short-lived as the market is turning increasingly bearish on the pound. Total negative bets on sterling in the week to April 28 were at their lowest since December 2019, according to weekly futures data.
A lack of progress in Brexit negotiations and a fear that Britain is falling behind other European countries in terms of easing lockdown restrictions to allow for an economic recovery, are both weighing on the pound’s long-term prospects, analysts say.
On Thursday this week, Johnson is due to review the lockdown. He must find a way to get the world’s fifth largest economy back to work without triggering a deadly second wave of Covid-19 infections.
The Bank of England also meets on Thursday, when it will attempt to quantify the economic impact of the coronavirus crisis.
“Away from Thursday’s BoE rate meeting, the focus this week will be on the UK governments “phase two” announcements about softening the lock-down,” ING strategists wrote in a note to clients.
“We suspect that news was largely priced into Cable when it was trading 1.2650 last week and this week will be more susceptible to downside risk,” they said. — Reuters